Exit, Voice, and LP&L

For many years Lubbock, Texas was the largest or among the largest cities with dual, competing electric utilities. If a consumer was unhappy with utility A, all it took was a phone call and about three days and the consumer would be hooked up to utility B. Standard economic theory suggests that such an arrangement would be unsustainable, but by most accounts electric rates stayed low and customer service was high. Some of this story is laid out in a 1981 Reason magazine article, “Two utilities are better than one.”

The official history once posted on municipal utility Lubbock Power & Light’s website claimed, “All electric customers in Lubbock have benefited from the decision of those early pioneers to begin retail competition.” It is true. A decade ago rising gas prices caught the city by surprise, LP&L tried to raise its rates noticeably higher than competitor Xcel, and consumers simply switched. Rather than simply stick consumers with the bill for their own lack of management savvy, the city and LP&L were forced into a complicated and unpleasant set of deals that diminished management’s role but kept rates low. Consumer exit protected the power consumer’s pocketbook.

Then, a couple of years ago, city powers that be decided two utilities were more trouble than one, LP&L bought out competitor Xcel in the city limits of Lubbock, and the town’s electric service was monopolized for the first time since September 1917. I blogged about the change, and a few locals objected, but the transaction sailed through without much difficulty.

Fast forward to today. The city council has recently approved a rate increase, implemented right before the summer began and accompanied by a massive billing snafu the first month, and now rather than LP&L being one of the cheapest in Texas it has rates near the state average.  Consumers, who no longer have exit as an easy option, are finding “voice” to be a frustrating experience.

Once you could call the competitor, and a few days later you’d be out. Now you can call your city council member, and when that turns out to be less than satisfying, start grumbling about recall petitions and lamenting the loss of the good old days. But pay your bills on time, or at least make billing arrangements in time, or get cut off.

As one Tech student remarked, “Maybe there is a lesson about competition in there.”

[NOTE: I'm not taking a stand for or against the rate increase. Perhaps it is needed given the circumstances, even though consolidation of the two utilities was supposed to yield cost savings, etc. etc. However, had the city still be in competition mode, I suspect the management plan would have been much different.]

A “stop watching us” smorgasbord

If you follow Knowledge Problem on Twitter, you’ve noticed that I’ve been continuing to comment on and re-tweet various of the developments in the federal government’s surveillance of individuals without obtaining warrants, the Star Chamber-like super-secret FISA courts and our inability to oversee and monitor the lawfulness of their rulings, and this week’s House of Representatives vote on the defense appropriations amendment to restrict NSA funding. Rather than recapitulate all of that here (since others have done good jobs elsewhere and the marginal value of my curation in that area is dwindlingly small), I’ll highlight a few items on the subject catching my attention today:

This is Your Brain on Terrorism: Several writers, myself included, have pointed out that the fear-mongering associated with heightened security in the face of terrorism is based on emotional evaluations of poorly-performed relative risk assessments. In this post from Tuesday, Brian McGlinchey provides a thorough analysis of why our reaction to terrorism compared to, say, riskier things like driving to the airport or getting out of the bathtub is so much more emotional, and how that emotional reaction is grounded in some pretty strong cognitive biases. The more aware we are of those biases, the less likely we are to be swayed by them. As I said in the 2011 post where I talked about this: be indomitable. Refuse to be terrorized.

Lawmakers voting for NSA phone spying get lots of campaign donations from defense companies: “Crony corporatism on line 1!” Eisenhower’s warning about the military-industrial complex, which has mutated into its bastard stepchild, the security-industrial complex (with the complicity of the tech companies making it a silicon-security-industrial complex). Take your pick of which political economy/public choice theory theme fits here, but this new story from Wired shows that the members of Congress who voted not to rein in the NSA’s blanket phone surveillance receive the disproportionate share of campaign donations from the defense industry: “Lawmakers who voted to continue the NSA dragnet-surveillance program averaged $41,635 from the pot, whereas House members who voted to repeal authority averaged $18,765.” 9 of the top 10 donation recipients from the defense industry voted to maintain the NSA’s phone surveillance without changes to transparency, oversight, or funding.

We can’t tell you with whom we are at war: This ProPublica article shows the Kafkaesque absurdity running rampant in the federal government, particularly with respect to security policy. From the “if I told you I would have to kill you” department: Defense officials have told some (not all, some) members of Congress who the “associated forces” are that they are lumping in with Al Qaeda and the Taliban as our opponents in the “War on Terror”, but our elected so-called representatives can’t tell us because the information is classified. Not to mention that the federal government wages this so-called war under the legally shaky AUMF “authorization of the use of military force” rather than a declaration from Congress. Now that I think of it, I think Kafka understated the self-serving absurdity of centralized, controlling bureaucracy.

[waves to good friends at the NSA! Thanks for reading; have a nice weekend!]

How did an oil and gas state come to lead in wind power?

The Great Texas Wind Rush by Kate Galbraith and Asher Price

“The Great Texas Wind Rush” by Kate Galbraith and Asher Price

Kate Galbraith, a reporter for the Texas Tribune, and Asher Price, a reporter for the Austin American-Statesman, have written a great historical review of the development of wind power in Texas.

Admittedly, the book is a little light on the kind of details that the interested energy economist wants to know, but the narrative is strong and the economic clues are there for the interested reader to follow. The book covers the emergence of the industry from the pre-1980s idealists and tinkerers to the 2000′s industrial scale wind farms. Both the hopes and dreams of designers and developers, and the frequent crashing of those dreams, are reported upon. The industry has been boosted by often generous but usually uncertain policies, and challenged by sometimes high and sometimes low electric power prices. Some early California wind projects, mentioned in the book, seemed mostly about capturing generous investment incentives rather than long term power production. Many of these didn’t last long enough to meet their initial PURPA-based contract obligations. Texans tried to avoid the worst of the California policy experiences. (Turbine reliability has improved over the years, but remains an important issue in Texas and everywhere else.)

The book goes into all of these issues and more, all along keeping in touch with the characters that moved the business along.

West Texas locations and people feature prominently in the stories, and since I grew up in Amarillo and now work in Lubbock, I got a special kick out of reading about the locals. I have met five or six of the people interviewed for the book (and also met author Kate Galbraith when she was in Lubbock last year), and I’ve seen many of the wind power projects mentioned as I’ve driven around the state. Maybe I have an overly positive reaction to the book for personal reasons.

Still, I think the book provides a good review of the development of the industry. Whether you support or oppose wind power policies, this book will improve your understanding of the industry in Texas. It would provide a useful supplemental text for college courses on the wind power industry and renewable energy policy.

Algernon Sidney on absolutism and political power

Lynne Kiesling

One of my favorite political theorists is Algernon Sidney (1623-1683). Sidney’s most famous work is Discourses Concerning Government (1698, published posthumously because Sidney had been executed for treason by Charles II). In addition to his motivation to write in response to the absolutism and authoritarianism of both Oliver Cromwell (whom he considered a tyrant) and the Stuart kings of England, Sidney wrote against absolutism and the divine right of kings in response to Robert Filmer, a pro-monarchy theorist. According to Wikipedia (and this summary accords with my understanding):

For Sidney absolute monarchy, in the form practiced by Louis XIV, was a great political evil. His Discourses Concerning Government (the text for which Sidney lost his life) was written during the Exclusion Crisis, as a response to Robert Filmer‘s Patriarcha, a defence of divine right monarchy, first published in 1680. Sidney was quite opposed to the principles espoused by Filmer and believed that the Sovereign’s subjects had the right and duty to share in the government of the Realm by giving advice and counsel. It was Filmer’s business, he wrote, “to overthrow liberty and truth.” Patriarchial government was not ‘God’s will’, as Filmer and others contended, because the “Civil powers are purely human ordinances.”

Chapter 3 of Discourses contains important parts of Sidney’s argument, and shows his application of classical Roman political theory to argue for a republican form of government grounded in the participation and power of the governed. In it Sidney says that

That which is not just, is not Law; and that which is not Law, ought not to be obeyed.

You may think that Sidney’s arguments have a lot in common with John Locke’s, and you’d be correct. But Sidney goes even further than Locke. Locke argued that those living under a despotic or tyrannical government, living under illegitimate power, have the right to revolt against that government because the power of the government derives from the individuals in the society. Sidney says that not only do those living under illegitimate political power have the right to revolt against that government, but that people living under illegitimate power have a moral duty to revolt against that government.

Sidney was second only to Locke in influence among the American founders and those who forged the institutions of the United States and who put forward the arguments for rebellion against the British government.

Just sayin’.

OPEC: Threat or menace…?

Michael Giberson

… or a clumsy cartel causing excessive volatility in world oil prices, or maybe none of the above. Earlier this week the Cato Institute hosted a discussion of a recent report by Andrew Morriss and Roger Meiners, “Competition in World Oil Markets: A Meta-Analysis and Review.” Panelists included Morriss, FedEx chairman Frederick Smith, and SMU economist James L. Smith. Jerry Taylor coordinated the program.

Of the group of panelists, I think it is J. Smith that has the best handle on the evidence — which unfortunately is all over the map. Yes you can find evidence that OPEC has manipulated oil prices and contributes to instability, but your can find comparable evidence suggesting OPEC has had no real effect. My preferred view is that Saudi Arabia has had an ability to swing prices up or down a bit at the margin–they being the one country willing to maintain excess productive capacity and manage it with an eye to long-run price levels. On J. Smith’s discussion of the evidence, perhaps I should become more agnostic on the matter.

If you, too, have an opinion about the effect of OPEC on world oil markets, then you ought to listen to the program and consider whether your view is well supported by detailed studies of the issue.

ADDED: Mentioned in the discussion is James Smith’s Journal of Economic Perspectives article, “World Oil: Market or Mayhem?“, available free online.

“The U.S. has thousands of energy strategies”

Michael Giberson

The Wall Street Journal printed a letter to the editor from Dick Gillette which gets right the response to calls for a unified U.S. energy strategy. Business Roundtable President John Engler earlier had complained the United States had no energy strategy and concluded that the nation was missing valuable opportunities because of it.

Gillette responded:

Regarding the April 3 letter from Business Roundtable President John Engler: Why are we all obsessed with our energy strategy? We are far less concerned with our manufacturing strategy and not at all about our retail strategy, as far as I can see. Why do we need an energy strategy at all, and who is “we”? Private capital has done a pretty good job of keeping our tanks full over the years without smothering GDP. “We” didn’t develop hydraulic fracking, or discover oil in North Dakota or spend billions to build refineries. Private capital did that, so what is it that “we” think we have to offer? As evidenced by Rep. Chris Van Hollen’s proposed bill to tax energy companies more heavily than other industries, in Washington an energy strategy is really just about money.

In fact, the U.S. has thousands of energy strategies. Some will succeed, some will fail, as always. But there is no reason to believe our tanks won’t be full at affordable prices for decades into the future.

Yes, thousands of energy strategies in this country, perhaps even millions. When values are diverse and knowledge is dispersed, letting a thousand energy strategies bloom really is the best approach.

 

Two foreign policy initiatives contrasted

Michael Giberson

Two foreign policy initiatives, both began in mid-March, one a year old and the other started ten years ago, have had dramatically different effects on the world. Eric Shierman celebrates the wiser of the two efforts:

I have considered writing about the Iraq War on the tenth anniversary of our collective, bi-partisan decision to make one of the greatest strategic mistakes in American military history, but it’s just too depressing to put words into sentences describing the cost in lives and treasure we paid….

Thus the most encouraging anniversary to reflect on is not our invasion of Iraq ten years ago this week, but the wise implementation of our free trade agreement with South Korea one year ago. … From that body of peer reviewed literature [on foreign relations] there has emerged little empirical evidence of a correlation between peace and the pursuit of ever greater military strength among states, but there is overwhelming evidence that the single most powerful pacific force in foreign policy is trade….

The empirical evidence is just overwhelming, … the more exposed people are to complex trading economies with a higher degree of specialization and division of labor, the more empathy they employ in their decision making and the more rational they are in seeking their own selfish ends through the voluntary cooperation of others. It’s not enough to know what you want; successful exchange requires a focus on what others’ want as well. This paradigm spills over into other aspects of our lives even when we are not aware of it.

Of course this is not the primary goal of free trade agreements, economic growth is. The pacifying effects of trade are merely a positive externality….

Worth reading the full thing.

Should governments raise the cost of water used in fracking?

Michael Giberson

In dry Texas, water use has been one of the bigger of the policy complaints tossed into the policy whirlwind surrounding hydraulic fracturing. A number of water quantity related bills are currently circulating in the Texas legislature and the Texas Railroad Commission (which regulated oil and gas drilling in the state) has considered a number of water related issues. At least a few of the bills aim at limiting disposal options for wastewater or promoting the use of wastewater recycling.  In effect, most of the bills would raise the cost of freshwater used in oil and gas drilling.

A general theme is much of Texas is still suffering the lingering effects of a drought, so we need to conserve freshwater. But if this is true, why focus so much attention on such a small slice of water use? Less than one percent of water in the state goes into oil and gas drilling. Recycling may be able to squeeze that one percent down a little, or at least keep usage under one percent as the number of wells drilled increases, at an estimated 50 percent increase in water costs.

Policies that selectively increase resource costs for some users and not others are almost certainly creating inefficiencies. Perhaps, to use an obvious example, irrigation could be reduced by 1.5 percent. Or maybe more cities should detect and repair leaks in their municipal supply systems. Or maybe more homeowners should xeroscape their yards. Or powerplants could buy water reclaimed and recycled from oil and gas drilling instead of requiring drillers to reuse it. I don’t know what the most efficient allocation of water uses is going to be, but I’m also sure that policymakers don’t know either.

So why not pursue policies that creates the wide-range of incentives and information needed to promote many low-cost conservation adjustments instead of policies that impose much higher costs on one particular kind of water use?

NOTE: The above prompted in part by Kate Galbraith’s article, “In Texas, Recycling Oilfield Water Has Far to Go,” part of a series on water and fracking in The Texas Tribune.

Promoting cooperation instead of conflict on public lands

Michael Giberson

A few days ago Shawn Regan and I had an op-ed that appeared in the Denver Post‘s Idea Log online section, “Promoting cooperation instead of conflict on public lands.” We begin:

Energy and the environment are often at odds. As America’s energy production reaches record levels, controversies over the environmental impacts of energy development dominate the headlines. More often than not, the result is costly litigation and lengthy political battles.

The debate is particularly intense on Colorado’s public lands. In the past five years, nine of every 10 acres proposed for oil and gas leasing in the state have been formally challenged. Plans to sell leases in the North Fork Valley and the Dinosaur area of Western Colorado provoked waves of protest this month. In response, the Bureau of Land Management deferred the sale of the controversial leases.

Although some conservationists celebrated the delay, many remain wary. During his State of the Union address last week, President Obama proposed to accelerate oil and gas permitting on federal lands. It’s clear that battles over energy development and environmental protection are not going away any time soon.

Recent agreements between energy developers and environmental groups suggest that it doesn’t have to be this way. Competing groups are increasingly working together to avoid costly litigation and reach compromises over energy and environmental values.

We continue with a few examples from Utah, Wyoming, and Colorado. We take these examples as indicating interest in alternatives to litigation and conflict, but the ad hoc nature of these actions are less than ideal ways of implementing policy. Shawn and I are working on a project to provide a more consistent policy foundation for such efforts.

Shawn Regan is an economist with the Property and Environment Research Center in Bozeman, MT, where this op-ed has been reproduced.

Who is the renewable power policy “playground bully”?

Michael Giberson

According to a poll by Fallon Research, “Nearly 60% [of Ohio voters] would pay an extra $3 a month on a $100 dollar energy bill to support the development of electricity from clean sources.” It is an interesting factoid, I suppose. My initial response is to wonder whether state electric power regulations in Ohio somehow prohibit Ohio voters who are so inclined from buying “electricity from clean sources.” If so, the regulations should be revised so that consumers have the opportunity to buy the kind of electric power they want.

Heather Taylor-Miesle, of the NRDC Action Fund, apparently thinks differently. She reads the survey results and thinks, “Great, this is a good reason for state regulators to force everybody to buy clean-sourced electricity, including the more than 40 percent who said they didn’t want to pay as much as 3 percent extra for clean-sourced electricity.”

Can we imagine polling Ohioans on whether they support the Cincinnati Bengals or the Cleveland Browns, and then having state regulators require every consumer buy a T-shirt from the majority-favored team? Why should electricity policy involve state-mandated purchases?

Granted, electric power production involves environmental harms and we might find state and federal policies useful in addressing these harms. But renewable-power purchase mandates are a inefficient way to pursue environmental goals. Granted also, there may well be positive information spillovers from research and development of less-polluting technologies. Renewable-power purchase mandates are an especially ineffective way of promoting the growth and spread of knowledge.

The main point of Taylor-Miesle’s Huffington Post piece was to suggest the conservative, pro-market policy group ALEC was playing the “playground bully” by advocating repeal of state renewable power purchase mandates. I find the suggestion hilariously backward.

So far as I have seen reported in the press, ALEC isn’t out threatening violence for state legislators who refuse to comply with ALEC’s wishes. So far as I know, ALEC operates mostly by distributing policy papers and hosting conferences where people talk a lot. I’ve never heard of a playground bully hosting a public policy conference.

Of course the policy that Taylor-Miesle favors is a policy of coercion: state renewable power purchase mandates simply require electric power retailers to purchase some fraction of their power from government-approved “clean sources.” Should a utility fail to comply, the state will impose penalties. Should a utility fail to pay, the state will seize money in the utility’s bank accounts. If that doesn’t work, the state eventually will close the utility down.

The state is the bully here. Taylor-Miesle is like that kid on the playground hiding behind the bully, egging him on. ALEC, on the other hand, wants to reduce the bully’s reach a little bit.